V.S. Ganeshan, S. Kannan and S. Babu v State of Kerala and EPF Organization

## IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V WEDNESDAY, THE 23RD DAY OF NOVEMBER 2016/2ND AGRAHAYANA, 1938 Crl.MC.No. 3250 of 2016 () --------------------------- AGAINST THE ORDER/JUDGMENT IN CC 64/2012 of J.M.F.C.- I, DEVIKULAM DATED CRIME NO. 939/2011 OF MUNNAR POLICE STATION , IDUKKI PETITIONER(S)/ACCUSED 1 TO 3: ---------------------------- 1. V.S.GANESHAN, AGED 67 YEARS, S/O. SRINIVASAN, 12TH CROSS STREET, ANNA NAGAR WEST, CHENNAI-600040. 2. S. KANNAN, AGED 56 YEARS, S/O. SRINIVASAN, 12TH CROSS STREET, ANNA NAGAR WEST,CHENNAI-600040. 3. S. BABU, AGED 45 YEARS, S/O. SRINIVASAN, DIAMOND GEETHANJALI APARTMENT, KALAKSHETRA ROAD, THIRUVANNUR, CHENNAI-600041. BY ADVS.SRI.N.C.RAJESH SMT.S.REKHA KUMARI RESPONDENT(S)/STATE: -------------------- 1. STATE OF KERALA, REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM. Addl.2.. ASSISTANT PROVIDENT FUND COMMISSIONER EMPLOYMENT PROVIDENT FUND REGIONAL OFFICE CHALAKUZHY BUILDING, CMC COLLEGE ROAD KOTTAYAM - 686 001 R2 BY ADV. SRI.JOY THATTIL ITOOP, SC, EPF ORGANISA R BY PUBLIC PROSECUTOR, SRI.T.R.RENJITH THIS CRIMINAL MISC. CASE HAVING COME UP FOR ADMISSION ON 23-11-2016, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: CONTD.. :2 Crl.MC.No. 3250 of 2016 () --------------------------- ## APPENDIX PETITIIONERS EXHIBITS : --------------------- ANNEXURE 1 CERTIFIED COPY OF FIR IN CRIME NO. 939 OF 2013 OF MUNNAR POLICE STATION ANNEXURE 2 TRUE COPY OF RECEIPT OF REMITTANCE OF PF ANENXURE 3 CERTIFIED COPY OF THE FINAL REPORT IN C.C. NO. 64 OF 2012 BEFORE THE JUDICIAL FIRST CLASS MAGISTRATE COURT, DEVIKULAM RESPONDENTS EXHIBITS : NIL -------------------- //TRUE COPY// P.A. TO JUDGE SKS **“CR”** ## **RAJA VIJAYARAGHAVAN.V, J ---------------------------------------Crl.M.C. No.3250 of 2016 ----------------------------------------Dated this the 23[rd] day of November, 2016** ## **O R D E R ~~~~~~~** 1.The petitioners herein are the accused Nos. 1 to 3 in C.C. No.464 of 2012 on the file of the Judicial First Class Magistrate, Devikulam. They are being proceeded against for having committed offences punishable under Section 406 of the IPC. - 2.Facts in brief :- The petitioners herein are the owners and the persons responsible for the day to day conduct of the business of the establishment, M/s Hotel Srinivas, Munnar. On their failure to remit the EPF contribution, which was deducted from the employees of the establishment for the period from 4/2011 to 09/2011, a complaint under section 406 of the IPC was filed based on which crime was **Crl.M.C. No. 3250 of 2016** **2** registered. Thereafter, investigation was conducted and final report was laid before Court. 3.The learned counsel appearing for the petitioners relying on the decision of this Court in **Gopalkrishna Pillai V State of Kerala** [2016 (2) KHC 338] contended that continuance of proceedings against the petitioners is an abuse of process. It is contended that even if it is held that there is entrustment of money with the employer within the meaning of Para 32(3) of the Scheme, the said entrustment falls short of essential ingredients of the offence of criminal breach of trust under Section 406 of the IPC and consequently, no prosecution can be initiated against the petitioners under the said Penal provision. It is further urged that after the institution of the prosecution, the petitioners had cleared the dues to the fund and prays that the proceedings be quashed. **Crl.M.C. No. 3250 of 2016** **3** 4.The submissions are vehemently opposed by the learned standing counsel appearing for the additional 2[nd] respondent. According to the learned standing counsel, the reliance placed by the petitioners on **Gopalakrishna Pillai** (supra) is untenable. Referring to Explanation No.1 to Section 406 of the IPC, it is contended that the act committed by the petitioners would squarely fall within the ambit of Section 406 of the IPC and pointed out that in the decision relied on by the learned counsel, this aspect was not taken into consideration. - 5.I have considered the rival submissions . - 6.The question is whether the proceedings against the petitioners in pursuance to Annexure-3 final report is liable to be quashed holding that the failure of the petitioners to remit the contribution to the EPF after deducting the amount from the employees will not attract **Crl.M.C. No. 3250 of 2016** **4** Section 406 of IPC . 7.The Employees Provident Fund Scheme, 1952 lays down certain mandatory rules for compliance by the employer, which essentially stipulates that deductions made by the employer from the wages of the workers as contribution towards provident fund, should be promptly deposited in the separate Provident Fund Account along with the employer's own contribution and a monthly statement showing such deductions and deposits must be submitted to the Provident Fund Commissioner. It implies that the rule is mandatory and non-compliance thereof attracts penal consequences. It is therefore not within the discretion of the employer to retain the money so deducted from its workers for any period beyond what is permitted under the rule. **Crl.M.C. No. 3250 of 2016** **5** 8.In this context, it will be relevant to briefly take a look at section 405 of the IPC which reads as follows :-: 405. Criminal breach of trust.--Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or willfully suffers any other person so to do, commits "criminal breach of trust". Explanation 1.--A person, being an employer of an establishment whether exempted under Section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), or not who deducts the employee's contribution from the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said law, shall be deemed to have **Crl.M.C. No. 3250 of 2016** **6** dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid. ## 9.According to the section, criminal breach of trust involves the following ingredients: (a) a person should have been entrusted with property, or entrusted with dominion over property; (b) that person should dishonestly misappropriate or convert to his own use that property, or dishonestly use or dispose of that property or willfully suffer any other person to do so; and (c) that such misappropriation, conversion, use or disposal should be in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract which the person has made, touching the discharge of such trust. 10.Explanation 1 states that an employer of an establishment whether exempted under Section 17 of the Employees' Provident Funds and Miscellaneous Provisions **Crl.M.C. No. 3250 of 2016** **7** Act, 1952 (19 of 1952), or not who deducts the employee's contribution from the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law - 11.It is settled law that explanation to a section is not a substantive provision by itself. It is entitled to explain the meaning of the words contained in the section or clarify certain ambiguities to clear them up. It becomes a part and parcel of the enactment. Its meaning must depend upon its terms. Sometime, it would be added to include **Crl.M.C. No. 3250 of 2016** **8** something within it or to exclude from the ambit of the main provision of some condition or words occurring in it. Therefore, the explanation normally should be so read as to harmonize with and to clear up any ambiguity in the same section. (See **Sulochana Amma V Narayanan Nair** [AIR 1994 SC 152]). 12.In **Onkar Nath Mishra and Ors. v. State (NCT of Delhi) and Anr** . [(2008) 2 SCC 561], it was observed that two distinct parts were involved in the commission of the offence of criminal breach of trust. The first part consists of the creation of an obligation in relation to the property over which dominion or control is acquired by the accused. The second is the misappropriation or dealing with the property dishonestly and contrary to the terms of the obligation created. ## 13.In **Harihar Prasad Dubey vs Tulsi Das Mundhra And** **Crl.M.C. No. 3250 of 2016** **9** **Ors.** [AIR 1981 SC 81], the question before the Apex Court was whether the misappropriation of the provident fund money of the school by the Secretary and Head Master of the school would attract section 406 of the IPC. The framing of charge under Section 406 of the IPC by the trial Court was interfered in revision by the Calcutta High Court and the same was quashed. The matter reached the Apex Court and it was observed as follows :- In our opinion neither of them was a valid ground for quashing the proceeding and the learned Judge was in error in thinking that continuance of the proceedings would be an abuse of the process of the Court. The two grounds are really one-that in the absence of statutory rules there could be no offence under Section 406 of the indian Penal Code. The Court in **Jaswantrat Manilal Akhaney v. The State of Bombay** [(1996) SCR 483] explained that; When Section 405 which defines "criminal breach of trust" speaks of a person being in any manner entrusted with property, it does not contemplate the creation of a **Crl.M.C. No. 3250 of 2016** **10** trust with all the technicalities of the law of trust. It contemplates the creation of a relationship whereby the owner of property makes it over to another person to be retained by him until a certain contingency arises or to be disposed of by him on the happening of a certain event. The person who transfers possession of the property to the second party still remains the legal owner of the property and the person in whose favour possession is so transferred has only the custody of the property to be kept or disposed of by him for the benefit of the other party.... The appellant also relies on a decision of the Madhya Pradesh High Court: **Akharbhai Nazarali v. Md. Hussain Bhai** (AIR 1961 MP 37). This was a case under the Employees' Provident Funds Act. The following observation occurs on page 39 of the report: It may be that the deduction and retention of the employees' contribution is a trust crested by virtue of that very fact, or by virtue of a provision in statute or statutory rule. But even apart from the latter, the mere fact of telling the employees that it is their contribution to the provident fund scheme and then making a deduction or recovery and retaining it, constitutes the offence of **Crl.M.C. No. 3250 of 2016** **11** criminal breach of trust. This, in our opinion, is a correct statement of the position and we also agree with the learned Judge of the Madhya Pradesh High Court that "this is so obvious that nothing more need be said about it." We therefore think that the impugned order quashing the charge against the respondents is obviously wrong. 14.Thus, even without invoking the scheme there is prima facie case against the petitioners for criminal breach of trust in respect of the contributions deducted from the wages of the employees. 15.I take note of the fact that Explanation 1 to section 405 of the IPC was inserted by Act No. 40 of 1973 and it had come into effect with effect from 1.1.1973. As rightly pointed out by the learned Standing Counsel, in **Gopalakrishna Pillai** (supra), the learned Single Judge had relied on a decision of this Court in **State of Kerala** **Crl.M.C. No. 3250 of 2016** **12** **V Haridas** [1969 KLT 906] to hold that the fictional entrustment under section 32 (3) of the Scheme would not fall within the ambit of Criminal Breach of trust under Section 405 of the IPC. This decision was rendered much prior to 1.1.1973, on which day Explanation 1 was inserted. Same is the case with the decision of a Division Bench of the Karnataka High Court in **Ahmed Ramlan vs Gertie Mathias And Ors** . [1977 CriLJ 309] which are in respect of events which took place much prior to 1.1.1973. 16.Be that as it may, the decision of the Apex Court in **Harihar Prasad Dubey** (supra) will hold sway. The decisions which are given in ignorance or forgetfulness of some inconsistent statutory provisions or of some authority binding on the Court concerned which may result in the reasoning which is demonstrably wrong, are per **Crl.M.C. No. 3250 of 2016** **13** incuriam decisions and have no binding force. The decision of the learned Single Judge in **Gopalakrishna Pillai** falls in this category for three reasons; firstly because it is rendered without taking note of the binding precedent of the Apex Court in **Harihar Prasad Dubey** (supra); secondly because Explanation No. 1 of Section 405 of the Code has not been taken note of and thirdly; reliance is placed on decisions rendered before Explanation No.1 to section 405 was inserted in the statute . 17.As far as the second point raised by the learned Counsel is concerned, subsequent payment of contribution by the defaulter cannot be a ground to quash the proceedings under section 482 of the Code of Criminal Procedure. I am of the view that the subsequent payment after institution of prosecution cannot be a ground to quash the criminal proceedings. The same view was taken by the Calcutta **Crl.M.C. No. 3250 of 2016** **14** High Court in **Hotel Dock Palace Pvt. Ltd. v. State of West Bengal and anr.** [2007 (113) FLR 692]. 18.However, taking note of the contention raised by the petitioners and their assertion that there was no wilful laches or negligence on their part and also the fact that the contributions were remitted in full, I am of the view that the petitioner can approach the Central Provident Fund Commissioner with a prayer to withdraw the prosecution. If any such application is filed, the Central Provident Fund Commissioner shall consider the same expeditiously. The petition will stand dismissed with the above directions. Sd/- **RAJA VIJAYARAGHAVAN.V. JUDGE** SKS //TRUE COPY// P.A. TO JUDGE